Blog

Clemson Software is considering a new project whose data are shown below. The required equipment has a 3-year tax life, after which it will be worthless, and it will be depreciated by the straight-line method over 3 years. Revenues and other operating costs are expected to be constant over the project’s 3-year life. What is the project’s Year 1 operating cash flow?   Equipment cost (depreciable basis) $65,000     Sales revenues, each year $60,000 Operating costs (excl. deprec.) $25,000 Tax rate 35.0%    

An annual coupon bond that matures in 15 years sells for $743.22.  It has a face value of $1,000 and a yield to maturity of 8 percent.  What is its current yield (CY)?

What is the present value of a perpetuity that pays $2,600 per year if the discount rate is 12.5 percent?

Susan recently received a credit card with a nominal interest rate of 19 percent.  With the card, she purchased some new clothes for $325.  The minimum payment on the card is only $10 per month.  If Susan makes the minimum monthly payment and makes no other charges, how long will it be before she pays off the card?

Sweeney Sailboats’ bonds have 20 years remaining to maturity.  Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 10 percent; and the yield to maturity is 9.5 percent.  What is the bond’s current market price?

An investment will pay $1,000 at the end of each of the next 2 years, $800 at the end of Year 3, and $700 at the end of Year 4.  What is its present value if other investments of equal risk earn 10 percent annually?

An annual coupon bond that matures in 20 years sells for $670.76.  It has a face value of $1,000 and a yield to maturity of 10.5 percent.  What is its current yield (CY)?

Wilson Corporation’s balance sheet has $45,000 total assets and $30,000 total liabilities. The firm nowhas 1,000 shares of common stock outstanding, and it sells at a price of $42.00 per share.  How much is MVA of WilsonCorporation?

Schallheim Corporation’s outstanding bonds have a $1,000 par value, a 13 percent semiannual coupon, 11 years to maturity, and an 11.5 percent yield to maturity (YTM).  What is the bond’s price?

Your client is 25 years old, and she wants to begin saving for retirement, with the first payment to come one year from now.  She can save $9,500 per year, and you advise her to invest it in securities which you expect to provide an average annual return of 9 percent.  If she follows your advice, how much money would she have at age 60?